Making Oil – Innovate and Industrialise
The Nigeria Local Contents policy emphasises the redistribution of Oil & Gas (O&G) wealth to Nigerians. This is a laudable strategy. But the stated means to achieve this end, in our view is weak on wholesome industrialisation of the sector and the economy.
The key to Norway’s success, which the Nigeria Local Content policy document references, is thinking big about innovation and industrialisation (manufacturing) in the long-term.
The aspiration of the newly released Nigeria National Petroleum Policy will serve this goal. To build a government-driven, but private sector-led O&G economy with a vibrant industrial and manufacturing base.
What Norway has done with O&G-based industrialisation is using existing world-class engineering and innovation competences and capabilities. These were adapted and repurposed for creating a new dominant and innovative natural resources-based industry.
In turn, the growth of, and innovation, in these sectors have become dependent on the demand placed by the O&G industry.
Government Actions
The Norwegian national government through its agencies, and often working with regional and local administrations, encouraged and forged innovations in its O&G industry. This has taken many forms of public-sector led investments.
To start with, the government sets the overall innovation agenda for the industry. The Oil and Gas in the 21st century (OG21) is funded by the Ministry of Petroleum and Energy, and led by Research Council of Norway (RCN), is the strategy for innovation in the O&G industry in the next 5 years. Started in 2001, the OG21 every five years, has made Norway to push the envelope of technology and business innovations.
The OG21 is developed after an extensive consultation with domestic industries, businesses, universities and relevant governmental and non-governmental agencies and organisations. The innovation focus ranges from automation, digitisation, decarbonisation, mechanisation, exploration, and commercialisation.
Aside from leading the development of OG21, the RCN also conducts in-house R&D in line with OG21. Most are carried out nationally, but few are in collaboration with relevant international partners.
The PETROMAK 2 is a basic research programme between universities, research centres and private sector[1]. Its goal is developing solutions for the effective management of Norway’s O&G resources.
For gas-focussed industrialisation, GASSMAKS is the innovation programme. The aim is to derive maximum values from the natural gas value-chain. This explores and exploits how gas is used in metallurgy, petrochemical and materials science.
Another in-house research programme is DEMO 2000. It funds new technology pilots and demonstrations in the industry. The aim is to defray the costs and risks of introducing innovation in companies.
All the vertical and horizontal O&G innovation programmes interact and co-create. These by extension, also do the same with other vertical ones – such as ENERGIX (energy innovation), CLIMIT (climate change technologies), and NANO 2021 (nanotechnology).
The RCN together with Innovation Norway (IN) and Industrial Development Corporation of Norway (SIVA) finance most of O&G innovation in the country. The trio dovetail with each other providing pre-seed, seed and venture capitals. They cooperate with each other to prevent duplication and to reinforce projects they jointly fund.
The private sector makes large contribution to innovation as well. They carry out and invest into in-business R&D. Fitjar & Rodriguez-Pose 2013 documented these actions in Norwegian firms, which include most that populate the O&G supply chain. Most of the R&D that take place in companies are in the forms of human resource development, managerial innovation, and technology development.
Industrial Response
Oil and Gas innovation and industrialisation in Norway is led by the government. But the private sector and industry are equally partners-in-progress in this endeavour. The industry and business have responded to public stimulus to innovate managerially and technologically.
In the early days of O&G innovation in Norway, government through Statoil and the research funding trio, dominated investment. But, according to Olav Wicken 2009, as the industry matures, the private sector including domestic firms and multinationals take the lead. The Report on Science and Technology Indicators for Norway 2015 showed the industry investing more into O&G innovation than the government.
A study titled Knowledge Based oil and Gas Industry by Amir Sasson and Atle Blomgren (Norwegian Business School) in 2011, sheds more light on the nature of private R&D. Schlumberger, the global O&G service giant, has relocated its global R&D to Norway. In addition, 31% of Norway’s domestic O&G companies spends 4% or more of their sales on R&D – more than any other industries.
Innovation in the O&G industry and supply chain is practical and focusses on problem-solving. It is more of a hands-on craftmanship (‘learning-by-doing’) and less of carrying out laboratory R&D. Hence, the main outputs of the industry have been technologies and techniques that address engineering and in-business needs.
The more focus on craft is not a handicap as per creativity. According to a study – The Innovation Performance of the Norwegian Offshore Industry by Yuriy Zhovtobryukh, Marius Nordkvelde, Torger Reve (Norwegian Business School for The Norwegian Oil & Gas Association) in 2014.
The Norwegian O&G Industry comes as innovative as high-tech telecommunication, biotechnology, IT services, and pharmaceuticals industries. This pans out in the high patenting activity of the Norwegian industry nationally and globally. Implying that the supposedly low-tech industry like oil and gas, is also high-tech.
The innovation in the O&G industry goes beyond technological (product) ones. It also includes business, organisational, process, and service innovations. The strength of the innovation network and of the industry in general is that product innovations precede and induce the other forms of innovation, according to Knowledge Based oil and Gas Industry report.
Meaning that investing into domestic technological innovations is more strategic than importing or adopting technologies to deliver local services. The changes that product innovations bring to the industrial and corporate landscapes, make other forms of innovations to adapt and evolve to meet current and future needs.
The innovativeness of the O&G sector spills over to the other sectors. As a demand aggregator, it induces the others to innovate to supply its needs. For example, Nammo AS, a Norwegian-Finnish aerospace and defence firm, is a lead innovator in rocket motors and explosives. It has grown by developing specialised detonators for the O&G industry. Now, its innovative rocket is powering the supersonic Bloodhound SSC – the vehicle developed to break the land speed record in 2018.
Technologies created for the O&G industry also drive further innovation elsewhere. These become sparks for further investment and improvement in other sectors. The development of autonomous undersea drones, for instance, is creating an avenue for a new industry for remote space exploration to emerge from. Also, a Norwegian company is repurposing such drones for airborne and underwater cinematography.
Product innovation, not service innovation, is the main driver of industrialisation and business growth in the O&G sector. Such includes using extant technologies and capabilities to create for the sector.
Extant innovations
Norway’s old industries combine to produce a new high-tech O&G one. The new one in turn drives the older ones, and makes them more innovative and productive.
In the O&G industrial landscape and supply chain network, the fabrication and manufacturing of hardware have predominated. But these have often been associated with design and software innovations.
The technologies that the industry produce, go beyond the traditional rigs, drilling bits, pipelines, turbines, and vessels. Advances in digitisation, automation, water-borne drones, control software and robots are being made as well.
These innovations are carried out by companies of varied sizes, repurposing their extant competences and technologies for the O&G industry.
Starting with the Hydro-power generation industry, Norsk Hydro, once the biggest company in Norway, applied its technological competence and foreign capital to kick-start innovation in the emerging O&G industry.
Aker is a shipbuilding and construction company, which used its technical know-how to build the first offshore platform that is appropriate for the rough Norwegian Continental Shelf. The Condeep built with concrete instead of the normative steel, was a pace-setter in O&G innovation. And it was the foundation upon which Norway’s supply chain was built on.
Aker was also instrumental in building ships and processing equipment for Norway’s Liquefied Natural Gas when the country diversified into this area.
Kveaner, a shipbuilder built the first mobile rig used on the Shelf. An opportunity which arose when the original one procured by a multinational for the job, broke down during transit. The company is now part of the highly diversified Aker industrial conglomerate.
In the early days of oil discovery in Norway, the established shipping industry was instrumental in setting the tone for future innovation. Having an existing strong foothold in international oil transport market, this industry brought the know-how and financial resources into the emerging industry. For instance, Fred Olsen, a shipping company, formed Saga Petroleum, the sole private oil operator alongside Statoil and Norsk Hydro in the early days of oil exploitation.
Kongsberg was a military technology company, which repurposed its technology to create a digital innovation – the dynamic positioning system. Which when combined with mobile platforms built by the shipbuilders, created a new paradigm in offshore platform technology.
The adaptation of existing technology and knowledge was not only by big companies. Smaller companies with the requisite craft and skills also joined the bandwagon. Examples were two family-owned workshops producing implements for provincial farmers, showcased in the Knowledge Based oil and Gas Industry report. These are now part of the global O&G supply-chain, fabricating parts for machines and equipment.
Just as the O&G sector has benefitted from extant innovations in adjacent industries, it is generating innovations to add value to other industries through clustering.
Industrial Structure – Clusters
The key strategy for O&G industrialisation in Norway is the clustering of similar and associated companies together in one geographical area. The technology and industrial clusters drive innovations within themselves, and extend such dynamism to other clusters in different geographies.
The clusters are at the centre of a national and global supply chain networks that serve its domestic markets and international commerce. They are collection of universities, research centres, businesses, and companies. With the overarching goals of business creation, technology fabrication, product manufacturing, and embedded digitisation.
The business models for innovation in Norway are dictated by regional clustering. Partnerships, consortia, cooperatives, conglomerates are the main forms of business organisation. Thus, management depends on collaboration and knowledge sharing across the network.
Extant innovation capabilities and capacities in companies are key to the success of the industrial-research clusters. The possession of such assets is more prominent in certain cities with a dominant company. These big companies act as hubs of innovations and are connected to the spokes – small and medium companies feeding on and feeding back to them.
The city of Kongsberg hosts an eponymous conglomerate and cluster. It is known for high-tech industrialisation and system engineering. Oslo hosts two big conglomerates in shipping and heavy industries– Aker and Norsk Hydro that are main suppliers to the O&G industry.
Raufoss is another city with an eponymous company and cluster. It pioneered mining (aluminium) industrialisation in Norway. It has since diversified into automotive, electronics and materials innovations. Raufoss provides an industrial link between the O&G and mining industries. It supplies materials and mechanical tools to the former.
The regional O&G agglomerations are central and fundamental to the country’s national innovation system – the Norwegian Innovation Clusters (NICs). Their hallmark is to foster originality, multidisciplinary collaboration, and co-creation.
Through the integrated national cluster network, the O&G industry acts as a nucleating driver of innovation in other clusters. In those that focus on machineries, IT, electronics, space technologies, shipbuilding, materials, instrumentation, mining, cleantech, digital health, biotechnology, and others.
The O&G clusters in the Western and Northern areas of Norway act as hubs for innovation in the country. The key O&G clusters started as the Norwegian Offshore Drilling and Engineering (NODE) and the National Excellence Centre (NCE) Subsea. They have since become Global Excellence Centres (GCEs), as they serve both national and global markets.
The GCE Subsea aside from the traditional focus on undersea drilling, rigging and pumping technologies, has made progress in digitising the physical. Success is being achieved with artificial intelligence, data analytics, 3D printing, sensing, and Industry 4.0.
Likewise, the GCE NODE, is making progress on similar frontiers, including in automation, biotechnology, remote monitoring, automation, robotics, deep sea mining, materials science, and cleantech.
Norway is taking an integrated approach to its O&G industry. This includes integrating with its petrochemical, LNG, refinery, metallurgy, and mining industries. At the centre of the nexus are companies such as Statoil, Yara, Elkem, Norsk Hydro, and others, which are hubs in clusters.
The clustering of the O&G industry goes beyond the upstream sub-sector. It also includes the midstream and downstream ones. The North-western part of Norway hosts a cluster of refineries and Liquefied Natural Gas (LNG) plants operated by Statoil and multinationals. This area is covered in chains of pipelines and tankers transporting oil and gas from offshore to onshore for purification and exporting.
The development of refineries in Norway was part of a national and regional industrial strategy. This was a government-led innovation, but an industry-driven enterprise. The main refinery and most pipelines in the cluster were built by a domestic company – Norsk Hydro.
The petro-chemical industry in Norway clusters around its South-western region. Though, it has consolidated due to pressure from the international markets, it is still a vibrant part of the country’s economy. This cluster is led by a British multinational – INEOS.
The industrial structure in Norway is based on clustering. This regional agglomeration dictates business models driven by conglomerates and consortia. The nation’s O&G industry follows this pattern, and it is central to the nation’s innovation network, industrial organisation, and enterprise.
Review and Recommendations
This is not a comparison between countries. But Norway in fulfilling its Local Content policy, has built a world-class industrial enterprise and innovation network driven by exploiting its O&G industry.
As Nigeria continues to implement its Local Content policy, inspiration can be drawn from the Norwegian experience. A review of the Nigeria policy, shows that the relevance of innovation and manufacturing are recognised as part of localisation. The newly released Nigeria National Petroleum Policy also aspires to such thinking big.
This a welcome development.
The reading of the two documents, however, informs that a narrow focus on industrialisation is taken – adopting ready-made technologies. Which on its own is a step in the right direction. As using technologies well will contribute to driving productivity and yield.
A broad focus is nonetheless required.
The policies would be strategic by being pro-innovation. The scope and scale of their operation, strategy and impacts must be expanded. To designing and developing new and contextual technologies and services by using the whole assets and capabilities of the country.
There is an urgent need for the wholesome industrialisation of Nigeria. And the O&G industry provides the platform for creating this. Doing so, will require more than the preferred methods mentioned in the Local Contents policy – passive actions such as tax credits, subsidies and other fiscal incentives.
What is needed is a reinvention. The strategic exercise of National Agency in the form of an active pro-innovation industrial plan.
With an immature innovation network or system or a lack of an obvious industrial strategy, the two policies must be bolder. To include and explore linkages with other established and emerging sectors such as the mining, digital, and telecommunication industries[2].
Moving forward, these recommendations are offered:
· A National Industrial Strategy with the O&G industry at its centre. A capable National Innovation System is required to build the nation’s manufacturing and industrial capabilities and capacities.
Active efforts must be taken to build the domestic supply chain network that is not only service-oriented, but has a strong focus on product and process innovations.
In doing so, a wholesome natural resources-based industrialisation must be pursued with adjacent sectors. Based on a concerted national development plan with the emerging mining, and the growing agriculture industries. These are high potential users of oil and gas for fuel and materials, and technology co-development must be fostered.
To build Nigeria’s domestic technology system capacity, the plan must engage with the emerging and established manufacturing bases in the country. Car and Truck manufacturing in North and East is one of such. To wit, Peugeot Nigeria, offers a pointer as to how the localisation of the supply chain can be achieved. It has a plan to target 50% Local Contents in place.
In the same line of thinking, the re-focussing of Nigerdock on ship and O&G equipment manufacturing is in order. At the moment, it is languishing, but its re-invention will be strategic for national innovation development. Nigerdock and its likes, will create demand for materials in the mining sector to build pipelines, refineries, vessels, and rigs.
The role of Defence Industries Corporation of Nigeria can also be considered in this light.
In doing so, small-scale welders, mechanics, electricians, technicians, and engineers must not be neglected. Industrial clusters must be created to harness their skills and talent, and bring them on-board as suppliers to the big O&G and manufacturing companies.
· The current plan for the Nigerian Content Development Fund must be extended. The Fund must be beefed up and directed to foster innovation and technological development in the O&G industry and beyond.
The use of the Petroleum Technology Development Fund to this end is in order.
In doing so, cooperation must be fostered with commercial banks and national development banks such as the Bank of Industry, Nigeria Import and Export Bank, Nigerian Industrial Development Bank, Development Bank of Nigeria, and others.
To this end, Nigeria Sovereign Wealth Fund and Pension Funds must be strategically utilised. This gives the Central Bank of Nigeria and the Ministry of Finance a strategic role to play in formulating the necessary enabling fiscal and monetary policies[3].
Congruence and coordination must be created with extant development plans and programmes such as the Nigeria National Petroleum Policy, National Gas Policy, Nigerian Industrial Revolution Plan, Niger Delta Development Commission, Nigeria Economic Recovery and Growth Plan, Small and Medium Enterprises Development Agency of Nigeria, Nigeria Science and Technology Policy, and relevant others.
· Spin-off Nigeria Engineering and Technical Company (NETCO). As part of the proposed reformation and streamlining of NNPC, spinning off NETCO as a corporation gives an industrial pedestal to stand-on.
The incorporation and the independence that comes with it, sets it up for partial privatisation. This enables it to form partnerships with national and international companies and research consortia.
In doing so, the pivotal role of Nigeria Petroleum Development Company Ltd., and that of Nigeria Liquefied Natural Gas must be upfront. Norway’s success is driven by using its upstream sector as a leverage for international technology transfer.
Norway’s success story came about by a range of factors. Most importantly, is the role of national, regional, and local governments. They provide direction and stewardship with the freedom for the private sector to create, make, and sell.
The Nigeria Local Content policy opens an avenue for forging a national industrial strategy. The O&G industry will act as a platform for domestic innovation and technology development. This must be government-driven and private-sector led.
O&G industrialisation is a job and wealth creator. And it can spread benefits across the country, if there is a culture of innovation.
The first piece of the series is titled Distilling Oil: Political & Corporate Leadership
The Introduction to the series is available.
[1] The nature and dynamics of the research infrastructure are explored further in a later series.
[2] The latter two industries are explored further in a later series.
[3] The roles of financial policies and organisations are explored in a later series.
